Fed officials are getting close on an agreement to begin a tapering program in a few months. An end-date hasn’t been set yet, but some Fed officials are pushing for mid-2022.
Businesses around the world are sitting on a stockpile of $6.84 trillion according to S&P Global. This is based on second-quarter earnings reports. That is up by 45% from five years ago and 2.6% greater than last quarter. Despite being flooded with cash, corporate spending is expected to decline by 5.8% this quarter, down from 12.9% last quarter. Many companies are holding on to cash until the virus clears. Part of the cash buildup was due to dividends cuts and cancelations of share-buyback programs. Then you have huge amounts of debt being raised to take advantage of low interest rates.
US stocks were up by 0.56% and international stocks increased by 0.81%. The US market closed at another high while international stocks are still off of their June highs.
Producer prices increased by 7.8% year over year in July, indicating that the “transitory” inflation is so far a bit more than the Fed ever expected. Meanwhile, the Senate is working on a $3.5 trillion package, at the same time they are getting closer to passing a $1 trillion infrastructure package, on top of all the trillions thrown in to the economy last year, and they wonder why prices are up?
Barry Knapp, director or research at Ironsides Macroeconomics, said in Barrons this weekend, “We have this setup now that is very similar to the 1960s, which led to the Great Inflation of the 1970s.”
There were more jobs available in the US in June than at anytime. Unfilled job openings increased by 590,000 in June to 10.1 million unfilled jobs. That exceeds the number of unemployed by more than 500,000.
An article in Bloomberg on Saturday says analysts are the most optimistic in two decades. About 56% of recommendations are buys, that is the most since 2002. This coming when markets are at all-time highs and valuation metrics are stretched.
Stocks rallied on Friday for another up week, closing at a new record, US markets were +0.96% and international equities were up by 0.80%. Bond fell by 0.43% on a strong employment report.
Nonfarm payrolls were up by 943,000 in July, the best gain in 11 months. The unemployment rate fell to 5.4% from 5.9% in June. 261,000 workers entered the labor force, another positive sign. The surveys were done before the big Delta variant surge started in mid-July, but they do indicate there was a lot of momentum in the economy going into it. The Delta surge though is starting to reach frightening levels in some areas. In Austin, Texas, a city of 2.4 million, there are just six ICU beds left as of this morning. On Saturday there were 102 people on ventilators compared to four on July 4th. The City’s health department asked residents to stay home and mask up even if they have had the vaccine. Houston, with a population of 6.7 million, had 41 ICU beds available. Florida posted a one-day record for Covid cases on back to back days, on both Friday and Saturday.
With the never-ending rally, some investors are starting to figure the bulk of the rally is in the past, but don’t expect a big market drop either, therefore moving into buy-write funds that tend to prosper in a go-nowhere market. The strategy attracted $1 billion in new inflows in July, the most since 2012, according to Barclays.